Memphis could ask nonprofits to make tax payments

Council plans to weigh PILOTs

Memphis may join the growing list of cash-strapped cities that ask nonprofit and tax-exempt organizations to make payments in lieu of tax.

The City Council will vote Tuesday on a resolution to form a committee to explore the idea.

"We want to see if this is feasible, and if it is feasible, how much revenue it could generate," said council member Janis Fullilove, who sponsored the resolution.

Fullilove said the committee, if approved, would focus on tax-exempt and nonprofit entities that gross $15 million or more annually.

As municipal budgets have felt the crunch of the economic slowdown, cities across the nation are increasingly asking their major tax-exempt businesses — hospitals, universities and cultural organizations — to make payments in lieu of taxes.

Robert Lipscomb, director of the city's Division of Housing and Community Development, estimates that 30 percent of properties inside Memphis are tax-exempt, including government buildings, churches, hospitals, nonprofits and universities.

"If you have 30 percent of your property not being taxed, that relates to everything else the city does," said Lipscomb. "That's just a fact."

In April, Boston began for the first time sending tax bills to nonprofits, asking them to pay up to 25 percent of what they would owe if their property were not tax-exempt.

The new revenue-raising plan in Boston is based on the estimated cost of providing basic city services, such as police and fire protection and snow removal.

Over the last decade PILOTs for tax-exempt entities have been used in at least 117 municipalities in at least 18 states, according to a report from the Lincoln Institute of Land Policy in Cambridge, Mass. Large cities collecting these forms of PILOTs include Baltimore, Boston, Philadelphia and Pittsburgh.

In Memphis, the existing PILOT program is an incentive tool used to lure businesses to the city and Shelby County. Under that system, businesses that secure a PILOT pay taxes on what the land is worth at predevelopment levels. Once they exit the PILOT program, they pay full taxes on the developed property.

Memphis officials will have to determine if nonprofits and tax-exempt entities should enter that program, or if a new program should be developed to get them to pay a portion of what they would owe if their properties were not tax-exempt.

"We'll have to determine if we need a new system," Fullilove said.

"I'm interested in these tax-exempt groups and asking them to be good stewards of Memphis," she said. "These tax-exempt groups use the same services the citizens use, fire and police services and protection, infrastructure like roads, so I'm asking them to help this community by paying a portion of their taxes if their properties were not tax-exempt."

Councilman Jim Strickland, chairman of the council's budget committee, sees no downside in asking tax-exempt entities to make PILOT payments.

"I don't see anything wrong with asking," he said. "The worst thing that can happen with this is them saying no, so I think it's definitely worth asking."

Greg Duckett, senior vice president and corporate counsel for Baptist Memorial Health Care, said tax-exempt institutions like Baptist already contribute to the city by bringing in jobs and research and by providing services the government doesn't.

"I respect and acknowledge the council's desire to look at this area, but in looking they need to look at the intended and unintended consequences of PILOTs," Duckett said. "You have to look at the purpose of nonprofit organizations and how they were created, and were it not for the services the nonprofits provide the public would probably have to pay for these services."

Duckett noted that Baptist provides free health care to the homeless and care for the poor that is not reimbursed, and provides facilities for the Church Health Center for $1 a year.

Baptist employs 5,700 people inside Memphis. Duckett said the hospital has a $76.5 million economic impact on Memphis.

"Obviously, if you are looking at the creation of some sort of taxes on nonprofits, items like that become legitimate issues for discussion over whether or not we can still do those things," Duckett said.

The talk of possibly including nonprofits and tax-exempt properties in a PILOT program comes as the current, business-recruitment-based PILOT is coming under review from city officials.

A council committee is considering a proposal to have outside auditors review the hiring and capital investment numbers submitted by companies enrolled in the PILOT program.

The Economic Development and Growth Engine board, or EDGE, tests about 10 companies a year to make sure they are producing the number of jobs and the amount of capital investment they promised to get the tax break. Around 75 companies are currently enrolled in the PILOT program.

The council has formed a six-member panel to examine economic development incentives offered by the city, including the PILOT program.

The committee will explore whether the incentives currently in place have been effective and if the city should develop new incentives.